HW Solutions (Chapter6)

HW Solutions (Chapter6) - 6-3A(A(B(A...

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Unformatted text preview: 6-3A.(A)(B)(A) x (B)WeightedProbability Return Expected ReturnDeviationP(ki)(ki)k(ki- k)2P(ki) .15-1%-.15%2.223%.3020.60%0.217%.4031.20%0.009%.1581.20%3.978%k =2.85%σ2=6.427%σ= 2.535%No, Pritchard should not invest in the security. The level of risk is excessive for a return which is less than the rate offered on treasury bills.6-4A.Common Stock A:(A)(B)(A) x (B)WeightedProbability Return Expected ReturnDeviationP(ki)(ki)k(ki- k)2P(ki) 0.311%3.3%4.8%0.4156.00.00.3195.74.8k =15.0%σ2=9.6%σ=3.10%Common Stock B(A)(B)(A) x (B)WeightedProbability Return Expected ReturnDeviationP(ki)(ki)k(ki- k)2P(ki) 0.2-5%-1.0%41.472%0.361.83.4680.3144.26.3480.2224.431.752k =9.4%σ2=83.04%σ=9.11%Common Stock A is better. It has a higher expected return with less risk.6-5A. Common Stock A:(A)(B)(A) x (B)WeightedProbability Return Expected ReturnDeviationP(ki)(ki)k(ki- k)2P(ki) 0.2- 2%-0.4%69.9%0.5189.00.80.3278.131.8k =16.7%σ2=102.5%σ=10.12%Common Stock B:(A)(B)(A) x (B)WeightedProbability...
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HW Solutions (Chapter6) - 6-3A(A(B(A...

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